Obviously, the potential gains are huge. More specifically, and I prefer to be specific rather than sound like some get-rich real estate infomercials that are intentionally vague and leave potential investors dazed and confused, the potential annualized income should and can fall between $100,000 and several hundred thousand. of dollars a year. The potential for this type of money depends on how many launches are made per year, with the average launch, properly executed, expected to yield between $30,000 and $60,000 per hit. So earning between $100,000 and $200,000 a year is not unreasonable. Again, your typical bread and butter, Grade A, off the shelf, by the book will net the investor $30,000 to $40,000 on average per trade.
The following is a prototype transaction: The value of the house when purchased is $300,000. You can secure a 95 percent LTV on a new loan. That equates to a $15,000 down payment. It takes nine months to build. Let’s say that at the end of the nine month period it is worth $350,000. You put this property on the market, which you originally bought for $300,000 nine months ago, for $365,000, just to add a little margin in case you have to lower the price. You sell this property, put it under contract and close for $355,000. Your expenses are about $10,000 for escrow, commission, title insurance, etc. (minus the $15,000 you’ve invested in the 95 percent LTV loan). That’s a total of $25,000 in expenses. Minus this $25,000 of the $355,000 sale price, you get $330,000 net. Consequently, since you bought the property for $300,000, that’s a net profit of $30,000. This should be your minimum threshold, because anything lower than that starts to have a diminishing return point. And as stated above, you are getting into very shaky territory when you make less than $30,000 per trade, because if something goes wrong, like a change in the market or unexpected price drops, you could be at a loss.
Other factors, such as the length of the market for a particular exchange and where you buy your product, are also determinants of profits. Fortunately, you, the investor, can control this multitude of situational basics. As a resident of Pasadena, California, I traverse the Green Triangle, a self-described geographic market region consisting of Phoenix, Las Vegas, and Riverside, California. Working multiple markets can be a critical hedge as some markets can outperform other markets in appreciation.
To put this in perspective in regards to not making repeatable mistakes and relying on a single market, I look back to my days as a commercial real estate broker in the Los Angeles office of Marcus & Millichap (M&M). The succinct adage I remember most was “surprise murder deals.” Those words are attributable to M&M’s memorable sales manager at the time, a guy named Ron Kotick. Mr. Kotick was a brutally honest, menacing sales manager who was more intimidating than likeable.
More harrowingly, Ron Kotick was the kind of guy who, if at any point he thought you might be about to screw up one of your own deals, you doubted that would happen, if only to prevent it. Kotick’s wrath. So “surprises kill deals,” and closed deals mean no paycheck, not just for you, but for the good old M&M as well. And if for some reason Mr. Kotick thought you were the least bit responsible for this mistake, you would never hear the end of it.
To give you a better idea of office politics and the general environment I thrived in back then, let me be a bit more specific. Mr. Kotick and I share a connection in that we both come from a Jewish heritage. There was a cadre of Jewish professionals at Marcus & Millichap in the Los Angeles office. In a positive way, I always thought of it as some sort of Jewish Brokers, Inc. Mafia. Mr. Kotick, I always thought, considered me his son his bastard given my longitudinal divide between the Christian and Jewish worlds. (And luckily, my stepmother, Maxine VanVoorst, is also Jewish.) However, despite our love/hate relationship, Mr. Kotick instilled in me the importance of detail in real estate investment transactions, and how the lack of it (i.e. not knowing the details), kills business and contributes to many potential profit losses. In many ways, Mr. Kotick’s behavior was like that of the character Alec Baldwin in the movie Glengarry Glen Ross, the greatest real estate movie of all time, and made many of us successful at Marcus & Millichap by beginning of our careers. . For this contribution, I am very grateful to Mr. Kotick.
Since being meticulous and detail-oriented in structuring your business, whether it be in home buying or commercial brokerage, is of paramount importance if you want to reap the potential profits that await you, then it is of paramount importance to Allow as few errors in the business as possible. As a result, pipeline management is a skill set that should not be underestimated. It is up to you to participate as much as possible in the marketing, due diligence, and loan structuring of your escrow deals. Not being attentive is reckless. Remember surprise kill deals.